San Jose Business Lawyers Blog

Articles Posted in Business Transactions

There are pros and cons to including an arbitration clause as part of your contractual agreements. Arbitration is a popular and can be effective forum for settling disputes between individuals, businesses, in real estate contracts and in employment settings under the right circumstances. There are two types or arbitration clauses:  non-binding and binding.

 

Non-Binding Arbitration

In non-binding arbitration, the arbitrator makes a decision to determine which party is liable and then suggests possible compensation for damages. Neither party is obligated to follow through with these guidelines.

Binding Arbitration

Binding arbitration is the opposite. The decision-maker hands down a ruling of liability and also assigns penalties. An arbitration clause can be binding in most contracts but California allows for the clause to be ignored if all parties agree to the change. Here are the advantages and disadvantages of having an arbitration clause.

3 Pros of Having an Arbitration Clause

  1. Saves Money

Arbitration is usually much cheaper than going to court and may be a viable option to save money. If the dispute continues to litigation, costly fees associated with depositions, uncovering evidence and pre-trial meetings follow.

  1. Speed of Decision

A case in litigation can take many months or years to conclude while having an arbitration clause may resolve the dispute much faster, usually averaging 475 days.  Arbitration has more relaxed rules of pleading and evidence in comparison to litigation rules.

  1. Confidentiality

Arbitrations can be held in private are subject to rules concerning confidentiality, so the parties that especially prize privacy are not exposed to public scrutiny.  Despite the fact that proceedings may be transcribed, arbitrations have no “public record.”

3 Cons of Having an Arbitration Clause

  1. Only One Decision-Maker

While litigation usually leaves the final decision to a panel of jurors, arbitration has only one arbitrator (who can be hand-picked) who passes down a decision of liability. Without an impartial jury vote, your case may be treated unfairly or receive a fraction of the required attention.  There is rarely a right to appeal if a mistake is made.  Further, arbitrators can make decisions on what they perceive to be fair, rather than what the law directs.

  1. Can Become Costly

The process of discovery is becoming more prevalent in arbitration, which not only lengthens the time of arbitration, but also the cost.   Unlike traditional court proceedings, wherein judges are compensated by the state, parties to an arbitration must pay the arbitrators out of their own pockets.  Many arbitrators charge hundreds of dollars per hour.

  1. Possibility of Unnecessary Claims

Arbitration may be taken less seriously than a lawsuit in court so some parties may treat it more like mediation. Necessary or frivolous disputes may not be weeded out through procedural processes normally applicable in court.

Having an arbitration clause can save time and money, but it may also be biased or lack the necessary procedural filters of litigation. An experienced attorney can help you navigate the legal system and determine if this is the right choice for you.

About Structure Law Group, LLP

Structure Law Group is a San Jose based law firm that serves its clients’ business, employment and real estate needs, including but not limited to business formations, debt and equity investments, employment agreements, commercial leasing and purchases, commercial contracts and related litigation.

The possibility of a hostile takeover is a very real concern for many publicly traded companies. A hostile takeover can occur in a number of ways, but one of the most common is purchasing enough stock on the open market to obtain a controlling majority. The main characteristic that defines a corporate takeover as “hostile” is the fact that the transaction is opposed by the target companies’ management.

Corporation Corkboard Word Concept with great terms such as business, public, articles and more.

In many cases, a shareholder rights plan, often referred to as a “poison pill,” is an extremely effective tool to prevent hostile takeovers of publicly traded corporations. Basically, these plans trigger rights for existing shareholders that, when exercised, make the potential transaction much less attractive for a potential buyer. As a result, potentially hostile acquiring parties are then economically incentivized to negotiate with the target company’s board of directors, strengthening the target’s bargaining position.

While there are many potential types of shareholders rights plans, two of the most common are “flip in” and “flip-over” plans, which are detailed below.

“Flip-in” shareholder rights plans

In this type of plan, existing shareholders of a company are able to purchase addition shares of stock at a discount but does not offer the acquiring party the same opportunity. As a result, the value of the shares that were purchased are by the acquiring party are diluted due to the market being flooded by new shares, as well as providing the existing shareholder with immediate profit due to the difference in the discounted and market value of the shares purchased.

“Flip-over” shareholder rights plans

On the other hand, a flip-over plan allows existing shareholders to purchase the shares purchased by the acquiring party at a discount. When exercised, this type of right causes dilution and devaluation of the acquiring party’s shares.

In order to be effective and legally enforceable, a shareholder rights plan must be properly drafted, structured, adopted, and exercised. For this reason, any company considering protecting itself from hostile takeovers by using a shareholder rights plan should consult with an attorney familiar with them.

Contact a San Jose business lawyer today to schedule a consultation

In many cases, an effective and enforceable shareholder rights plan can help ensure that a company is able to strengthen its position when approached by a potential buyer as well as defend itself from hostile takeover attempts. As a result, any business that is considering going public should discuss the implementation of any plan with an experienced San Jose business attorney. To discuss your options with one of our lawyers, please call the Structure Law Group today at 408-441-7500.

Historically, only general or limited partnerships were used for investing in real estate, but over the past decade, forming a Limited Liability Company (an “LLC”) has become a more popular choice for real estate investors. An LLC formed for real estate investment purposes is not very different from a regular limited liability company, and the steps for formation are very similar. Here are 4 benefits of using an LLC instead of a partnership or a corporation for real estate.

LLC - Purchaseing REal Estate

 

 

 

 

 

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California law imposes fiduciary duties upon the officers and directors of a corporation which requires them to conduct themselves in a certain way with regard to the corporation and its shareholders. A fiduciary duty is the highest duty that the law can require and it requires those upon whom the duty is imposed to act only in the interest of the party to whom the duty is owed. The fiduciary duties of officers and directors of a corporation have been codified in California Corporations Code § 309(a), which reads:

“A director shall perform the duties of a director, including duties as a member of any committee of the board upon which the director may Integrity word cloud concept with honesty trust related tagsserve, in good faith, in a manner such director believes to be in the best interests of the corporation and its shareholders and with such care, including reasonable inquiry, as an ordinarily prudent person in a attorney like position would use under similar circumstances.”

 

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Selling your business can make a good profit when sold to the right buyer. When you decide to exit the company, selling your business may be a good strategy. A business sale may not be easy, but there can be many rewards and benefits. If you’re interested in selling your business for profit, there are 3 things to keep in mind to make sure the process goes smoothly and without a legal hitch.

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3 Tips for Selling Your Business

  1. Hire Counsel

You’ll need someone in your court with a background on financial and business transactions. An experienced business attorney can help you prepare necessary documents and close the sale. You’ll want to lay out all finances to see how they may impact your personal wealth. You also won’t want to let the stress of the sale process lead to missed deadlines or late filing of documents. There are a lot of planning, structural, legal, and financial issues involved with the sale of a business, so having an experienced business attorney will be critical to ensure you’re making the right decisions. Continue Reading

Among people who are actively involved in business, Delaware is known as the state that is perhaps the most corporation-friendly in the United States. According to the state of Delaware, it has been “preeminent” as a place for businesses to incorporate since the early part of the 20th century, and more than half of all Fortune 500 companies are incorporated in Delaware. Clearly, there must be certain benefits of incorporating in Delaware that have been attracting businesses for more than one hundred years. Some of the most commonly cited benefits of incorporating your business in Delaware are detailed below.

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Flexible laws – The Delaware General Corporation Law provides corporations and shareholders tremendous flexibility in the way a corporation operates. In fact, an official publication distributed by the Delaware Department of State indicates that its corporate law has been written with a “bias against regulation.” Continue Reading

If you’re thinking about starting a nonprofit, there are some steps to take before you begin. Forming a nonprofit organization is much like starting a regular corporation, except there are several additional steps you must take to ensure tax-exempt status, which includes a rigorous application process. Here are some common questions and their answers about forming a nonprofit organization.

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Forming a Nonprofit Organization: Common Questions and Answers

What does ‘501(c)3’ mean?

Being a 501(c)3 corporation means a company has been approved by the IRS as a charitable organization, exempt from specified taxes. The IRS may grant your nonprofit organization tax-exempt status if the nonprofit was formed for religious, charitable, scientific, literary or educational purposes, so long as the nonprofit does not distribute profits to individuals above reasonable compensation. Continue Reading

January 1st brought 930 new California laws which are enforceable in the new year. We’d like to share some of the new and relevant laws for 2015 that may affect you and your business activities. Here are 7 new federal and California laws that took effect January 1st.

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7 New Laws for 2015

  1. Driver’s Licensing

Experts expect more than a million applications for California driver’s licenses to flood the DMV offices following new laws allowing non-U.S. citizens without documentation to get driver’s licenses. Continue Reading

As much as you may want to avoid litigation when it comes to your business, conflicts arise and are sometimes unavoidable as a cost of running a successful business. While you and your business partners may have other philosophies on handling workplace issues, sometimes litigation is the best course of action to deal with messy company separations, distribution of assets, protecting your property, and sometimes even handling suppliers and consumers.

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As a business owner involved in litigation, you don’t need to resort to spending years in litigation or paying unreasonable settlement sums; you need to build strategies with a business lawyer so you can resolve conflicts efficiently and effectively, and maximize your ability to avoid future disputes. When litigation is initiated, it is important that it is done right to avoid unnecessary mistakes that waste all parties’ time and money.

Here are 5 common legal mistakes business owners can make when stepping into legal territory, and how to avoid them.

1. Not Taking the Lawsuit Seriously. If you know you haven’t done anything wrong, it can be tempting to avoid hiring a lawyer at all. Developing a strategy, finding and interviewing witnesses, and getting paperwork in order can all be costly to your business if not done properly. To ensure you can keep your full attention on business operations during the lawsuit, hire a litigation attorney who specializes in helping business owners.

2. Not Considering Other Options. Sometimes in sticky litigation battles, one or either party may be too eager to settle before taking full stock of all assets at stake. Mediation and arbitration may also be other options to consider before going to court to save money on fees and avoid long delays.

3. Making Decisions Based on Emotions.

Being involved in litigation can be a highly emotional experience, and it can get very difficult to make important decisions that will affect your business. Instead of making impaired decisions based on your emotions, work with a business litigation attorney to come up with a strategic plan based on a cost-benefit analysis. Remember that the dispute is business related, and not personal.

4. Keeping Information from your Lawyer. Your lawyer is there to help you navigate the process, so it’s imperative that you keep your lawyer apprised of all relevant information. Sometimes it may be overwhelming and frightening to present the “bad facts” to your lawyer, but hiding facts can seriously impact your chances of success in settlement discussions or in court.

5. Using the Wrong Lawyer. Be sure to do your research when it comes to finding a lawyer that specializes in the type of dispute you are a part of. The right lawyer will be able to provide you with objective advice that is best suited toward your business. Business can be extremely personal so it can be easy to overlook pertinent facts. To avoid clouded judgment and conquer inflexibility, always consult legal counsel to ensure your best chances of success. If you need advice or assistance on how to proceed, contact your team at Structure Law Group.

About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

Pros and Cons of a C Corporation vs. an S Corporation

Selecting a business entity is one of the most important decisions an entrepreneur faces. There are numerous options including sole proprietorships, partnerships, limited liability companies and corporations. To make things even more complicated, there are two primary types of corporations, each with its own benefits. In order to ensure you choose the best business entity for your purposes, you should always conduct careful research and consult with an experienced California business attorney to discuss your options.

Once you have decided you want to incorporate, your options are to form a regular C Corporation or an S Corporation. Though these two types of corporations are quite similar, there are a few key differences that can determine which one is right for your business.

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3 Similarities between S & C Corporations

The following are a few ways that an S Corporation and C Corporation are alike:

1. Both types of corporations are owned by the shareholders, who have protections from liability for business debts and most business-related legal matters.
2. Both are structured the same way: the shareholder/owners elect a board of directors that oversees major issues. The board of directors then elects officers, who handle the day-to-day operations of the business.

3. Both must comply with state law regarding document filings, fees, bylaw and more.

Differences Between S Corporations and C Corporations

The most important difference between an S Corporation and C Corporation is the way that they are taxed. In both cases, shareholders pay taxes on dividends of any distributions of profits. A C Corporation, however, may also be taxed on the corporate level, which means it may be subject to double taxation. On the other hand, the taxes for an S Corporation all pass-through to the shareholders, so there is only single taxation. This pass-through taxation is authorized by IRS Code, Subchapter S of Chapter 1.

Though the single taxation of an S Corporation likely sounds preferable, the S Corporation entity is not an option for every business. Another difference between the two is that, while a C Corporation can be quite large and have numerous shareholders, an S Corporation may only have a maximum of 100 shareholders. In fact, the IRS created Subchapter S in part to encourage small businesses and entrepreneurship. Therefore, the size of your business may play a significant role in the type of corporate entity you choose.

If you have any questions about C Corporations, S Corporations, or other business entities, do not hesitate to contact an experienced attorney at the Structure Law Group for assistance today.

About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.